Amazon looks at Goodman facility for first warehouse

Global online shopping giant Amazon has hit the ground running in Australia, with industrial property agents saying it has signed a lease deal for a large purpose-built warehouse at the Goodman Group's $50 million Oakdale Industrial Estate, on Old Wallgrove Road, at Sydney's Eastern Creek.

Amazon has confirmed years of speculation that it is to start operating in Australia.

The agents at CBRE, said to be working with Amazon in its search for the distribution centres, which will be the backbone of its Australian operation, declined to comment on the market speculation. But other industrial agents told Fairfax Media, "a deal has been done at Goodman's Oakdale Estate".

Goodman's chief executive Greg Goodman has always declined to comment on any specific deals by Amazon in Australia.

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The estate is in two parts, Oakdale Central, which is mostly leased to DHL, and Oakdale South, which is large enough to accommodate an Amazon purpose-built "fulfilment centre".

These are automated warehouses, usually about 80,000 square metres-plus, from which Amazon processes orders.

It is early days for the south sector of Oakdale, but agents said Goodman had the capacity and expertise to start work when Amazon made a decision. Goodman is Amazon's main landlord globally.

Oakdale Industrial Estate, is a joint-venture site between Goodman and Brickworks. The estate comprises four DHL-occupied, purpose-built warehouse facilities and has about 17 hectares of developable land remaining. On completion of the two new facilities, DHL will occupy a total of 146,715 sq m across six facilities within the estate.

Amazon's arrival in Australia is likely to create thousands of jobs.

Photo: AP

DHL, which is a third party logistics business that would help deliver Amazon goods to customers, has a 58,225 sq m building on the site.

Landlord impact

According to Peter Zuk, an analyst at Shaw &amp; Partners, the choice (for Amazon) will logically be between Sydney and Melbourne.

Oakdale, developed by Goodman and Brickworks. According to industrial property agents, Amazon has signed a lease deal for a large purpose-built warehouse on the estate.

Photo: Supplied

Goodman Group is a potential, but not guaranteed beneficiary and other land owners cannot be ruled out. It will boil down to space requirements and pricing. There are plenty of landlords in Western Sydney, think Moorebank, Sydney and in Melbourne with big chunks of land – but you have to think Goodman's established relationship leaves it well placed to win Amazon's business.

"Short to medium term, let us assume Amazon initially seeks two purpose-built, large format fulfilment centres [100,000 sq m], one each in Sydney and Melbourne," Mr Zuk said in his note to clients on Thursday.

Goodman Group's chief executive Greg Goodman has always declined to comment on any specific deals by Amazon in Australia.

Photo: Dominic Lorrimer

"Two large sheds in Australia may be worth about $308 million. Assuming average rent of $110 per sq m in Sydney and $75 per sq m in Melbourne, and a capitalisation rate of 6 per cent, this implies a total value of $308 million – not that large in the context of the total Australian industrial market."

But Amazon is not a charity, so agents do not expect them to pay "overs on rent".

It's on.

Photo: Bloomberg

"Like any tenant, they will look to be incentivised. Moreover, think about what they 'squeeze' into a warehouse. Let's say the floor area is 100,000 sq m of net lettable area (NLA). Build a ceiling high enough, and all of a sudden mezzanine levels can be put in without necessarily generating higher rent for the landlord – but this certainly increases effective NLA for the tenant," Mr Zuk said.

Another unknown is whether Amazon will go human capital intensive or robot-intensive inside its warehouse(s).

"Either way, their fitouts can be expensive. Amazon is a capital intensive business, and if winning their mandate means initially covering the cost of their fitout, and recouping it on an amortisation basis, this could rule out landlords with lesser access to capital – Goodman is certainly not one of them," Mr Zuk said.

"The strength of its balance sheet and surplus cash could very much work in its favour."

However, with all internet providers now offering to deliver goods "within an hour" there is a need for smaller sites close to capital cities.

Mr Zuk said for this reason, the issue is also whether Amazon will take on smaller occupancies to help with "the last mile" delivery of goods – or if it will rely on third-party logistic (3PL) providers and Australia Post.

"We suspect initially this will be the case," Mr Zuk said.

Australia Post has confirmed it is "willing and able" to work with Amazon.